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Calamitous Consequences

  
  Education
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Karl Marx died in March 1883, yet there has been a rebirth of the ideas he detailed on the inherent flaws of capitalism. Recently, Paul Tudor Jones gave a ‘Ted Talk’ about capitalism needing re-definition. My paper entitled ‘2014 and Beyond’ began with the sentence, “Modern day capitalism appears to need a different moniker”.  It is quite possible that future developments in capitalism will have profound and on-going influence on markets and valuations.

Let me first go on record and say that in the 135 years since Marx’ death, capitalism has been the single greatest engine for human advancement.  It has certainly been an outstanding way to organize the production and distribution of goods and services. Its free-market structure encouraged innovation, leading to new methods and products whose technological advancements allowed for globalization and the general shrinking of the world.  Entrepreneurship aided improvements to health and education, and was the cornerstone to economic progress. No other social construct in history has done more to advance the human condition, or lift more people out of poverty, than capitalism. 

A capitalist structure’s main quest is to ensure the real appreciation of capital.  Corporate leaders are incentivized to maximize shareholder value at almost any cost: the best means is to increase output per hour worked (productivity).   Can this be sustained forever? (more…)

Buffett: Capitalism Works

  
  Education
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Here’s a recent interview with Warren Buffett in which he discusses a broad array of topics.  It’s worth 15 minutes if you have the time, but here’s the bullet points:

  • The US economy is still growing and “will continue” to grow into 2014.
  • Confidence creeps into a system while fear overwhelms it quickly.  It takes time to get the confidence back.
  • The American system has always persevered.  We’ve questioned capitalism time and time again, but the system works.
  • We’re 6 TIMES better off now than when Buffett was born.
  • The recovery is being driven by the “natural juices of capitalism and not the government”.
  • Advice for entrepreneurs: listen to your customers.
  • The capitalist system works because it unleashes human potential.

Balenthiran 17.6 Year Cycle

  
  Education
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Interesting take on the longer term Secular Bear Market Vs. Cyclical Bull Market, via Kerry Balenthiran:

“My research has identified that a 17.6 year stock market exists within the markets consisting of downtrends lasting 2.2 years and uptrends lasting 4.4 years (2 x 2.2 years), with a combined cycle length of 17.6 years. I have called this cycle the Balenthiran Cycle and demonstrate how the intermediate turning points match stock market behavior going back to the early 1900s and extrapolate the cycle forwards to provide a market roadmap of the next secular bull market to 2035 and subsequent secular bear market to 2053.”

A few caveats: The 17.6 year cycle has been bantered about for a long time by various people. (See “previous” below).

Second, I would add is that cycles can be interrupted by external events — like Bailouts, QE, etc.

Last, the world changes over time, and I doubt that any oscillation period dependent upon humans would stay all that consistent over decades and centuries.

Jesse Livermore Quotes -Must Read & Follow

  
  Education
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1) The stock market is never obvious. It is designed to fool most of the people, most of the time.

2) Play the market only when all factors are in your favor. No person can play the market all the time and win.There are times when you should be completely out of the market, for emotional as well as economic reasons.

3) Do not use the words “Bullish” or “Bearish.” These words fix a firm market-direction in the mind for an extended period of time. Instead, use “Upward Trend” and “Downward Trend” when asked the direction you think the market is headed. Simply say: “The line of least resistance is either upward or downward at this time.”Remember, don’t fight the tape!

4) The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.

5) The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental-stop, sell it immediately. (more…)

What to Monitor During a Correction

  
  Education
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  • Bull market correctionReversed for bear market correction.
    • Support below
    • Fibonacci retracement levels of prior uptrend
    • Bottoming price action
    • Positive divergence — index vs. indicators
    • Positive divergence — index vs. internals
    • Bullish candlestick pattern or western reversal bar
    • Notable change in scan hits
    • Break of resistance (downward sloping) trendline

Classifying Bull Market Declines

  • 1 to 3% – Market pullback
  • 3 to 5% – Minor correction
  • 5 to 8% – Standard correction
  • 8 to 12% – Deep correction
  • 12 to 16% – Very deep correction
  • 16 to 20% – Minor bear market
  • More than 20% – Bear market
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